Students of the culinary department at Options Public Charter School wait outside their school for the bus that will take them to perform community service for senior citizens at Sarah's Circle in Adams Morgan. (Astrid Riecken/The Washington Post)

Options Public Charter School was founded to improve the fortunes of the District’s most troubled teens and students with disabilities, and the District government sent millions of taxpayer dollars to the school each year for their education and care.

D.C. officials alleged in a lawsuit Tuesday that three former managers at the Northeast Washington school diverted at least $3 million of that money to enrich themselves, engaging in a “pattern of self-dealing” that was part of an elaborate contracting scam. The civil case alleges that the managers created two for-profit companies to provide services to Options at high prices, sometimes with the help of a senior official at the D.C. Public Charter School Board.

Those companies won lucrative contracts for bus transportation and school management and were paid for services that went undocumented or that were performed by school employees, according to the complaint and supporting documents. The Options managers allegedly received “exorbitant” bonuses shortly before they resigned this summer to run the companies full-time.

The managers were allegedly aided by the chairwoman of the school’s board of trustees at the time — WUSA (Channel 9) vice president and news personality J.C. Hayward — and the senior charter school official, who was responsible for charter-school financial oversight across the city. Documents filed with the court papers show that the signature of Hayward, who allegedly helped incorporate one of the companies, appears to be on some of the expensive contracts. The three ex-managers, their companies, Hayward and the charter-school board official were all named as defendants in the lawsuit.

Hayward told Channel 9 that she did nothing wrong, but she has been relieved of her duties pending further investigation, according to a news report from the station. Hayward and WUSA’s general manager did not return calls from The Washington Post to their offices seeking comment Tuesday.

Donna Montgomery, chief executive officer at Options Public Charter School, arrives at the school in this May 2013 photo. (Astrid Riecken/The Washington Post)

Donna Montgomery, former chief executive of Options and president of the two for-profit companies, said in a statement that no public funds were misused and that all contracts and payments “were disclosed and vetted by a variety of third parties, including the Options Board, outside auditors and the D.C. Public Charter School Board.”

“People tend to believe allegations like these are true when the facts are otherwise,” Montgomery said in a statement provided by Jeff Smith, who worked at Options until July and now is director of public affairs at one of Montgomery’s companies. “This is unfortunate for the Options School and its staff, me and my team but, most of all, the students.”

Options, an institution meant to change the lives of the city’s neediest children, served as a “cash-generating machine,” according to D.C. Attorney General Irvin B. Nathan, who has asked the D.C. Superior Court to appoint a receiver to oversee the school.

Criminal prosecutors are aware of the allegations and “will review all pertinent information as we continue our review of this matter,” said Bill Miller, a spokesman for U.S. Attorney Ronald C. Machen Jr.

The D.C. Public Charter School Board said there are no systemic problems with charter-school finances. The board has financial oversight of the city’s fast-growing charter schools, which now enroll more than 40 percent of District students and receive more than half a billion dollars in taxpayer money each year.

“We see this as an event that is very much specific to Options, and we are pretty proud of the level of oversight that we have in general,” said Darren Woodruff, the board’s vice chairman. “We’re confident that this is something that is not going to be an issue beyond this one school.”

Staff members for the charter board have recommended that Options close, and board members expect to vote on initiating that process at a meeting scheduled for Oct. 16. Scott Pearson, executive director of the charter schools’ board, said the school will remain open through the end of this school year in any case.

Options, founded in 1996, is the city’s oldest charter school. It enrolls about 400 at-risk students in middle and high school; most of them have disabilities, and many are homeless or have been through the juvenile justice system.

Parents who were outside Options at dismissal time Tuesday said they were surprised to learn about the allegations and worried about what might happen to their children if the school closes.

“All I want is for my child to get his education,” said Alanda Bucey, the mother of a student who was kicked out of his last school.

The city charter board launched an investigation of Options on Aug. 19, days after The Washington Post submitted a Freedom of Information Act (FOIA) request seeking contracts between the school and two for-profit companies founded and controlled by its managers: Exceptional Education Management Corp. (EEMC) and Exceptional Education Services (EES).

Those contracts and other payments to the companies — including a $2.8 million contract signed in February for management services — are at the heart of the District’s case.

Shortly before that contract was signed, the school allegedly projected that its annual revenue would grow by 25 percent — or $2.8 million — because of growth in the number of special education students with the most intensive needs, who also bring with them more city money: $28,284 each on top of the regular per-pupil funding of about $9,000.

Options also agreed to pay EES hundreds of thousands of dollars for bus transportation services. Though Options had paid a previous contractor $70,000 for bus services, it paid EES $981,250, according to a sworn declaration from a forensic accountant who examined the schools’ records for the charter schools board.

Montgomery presented herself as a school official when a Washington Post reporter and photographer visited Options in May. By then, according to contracts obtained by The Post via FOIA, Montgomery had already signed at least two lucrative contracts with the school, one as the chief executive of EES in September 2012 and another as the chief executive of EEMC last February. Montgomery and the other managers left the school in July.

In the court complaint, D.C. officials allege that the managers’ salaries were far out of line with what public officials make, especially given the size of the school.

Montgomery’s “salary and bonuses from Options PCS during a one-year period — at least $425,000 combined — totaled more than the salary of the President of the United States and more than twice the salary of the Mayor of the District of Columbia, even though Options PCS is a small school whose revenue comes mostly from public school funding,” the complaint says.

D.C. Schools Chancellor Kaya Henderson earns a base salary of $275,000 to run a school system of about 45,000 students, according to her employment contract.

Hayward, who is widely known as a four-decade veteran of the news business in the Washington area, allegedly “substantially assisted” the scheme by authorizing bonuses and signing contracts with EEMC and EES in her role as chairman of the Options board of trustees, according to the lawsuit.

Jeremy L. Williams, who was the chief financial officer of the D.C. Public Charter School Board until Aug. 21, also allegedly aided the scheme. He “regularly forwarded confidential, internal” e-mails to the three managers, including e-mails alerting them to a planned inspection of Options that was meant to be a surprise, according to court documents.

Williams, who also served on Options’s board of trustees, also allegedly maneuvered to ensure that EEMC’s largest contract, for $2.8 million, would not be reviewed by charter board staff members before it was approved. He is now EEMC’s chief financial officer, according to the lawsuit. Williams did not return calls to his office and home Tuesday.

Molly Evans, a former Options teacher who quit in the spring in part because she felt the school was not providing students with legally required special education services, said she was concerned that the city charter board “could not see past all the charades Options put up.”

A charter board spokeswoman said the board acted quickly when it learned of potential irregularities at Options in August, notifying the city’s attorney general and hiring the forensic accountant. In July, after a study of charter school finances, the board announced that it found “no pattern of fiscal mismanagement” at Options in fiscal 2012.

Charter schools board staff members plan to introduce changes to the contract oversight process at the board’s October meeting, said Theola Labbe-DeBose, a board spokeswoman.

“We take all complaints and tips seriously,” Labbe-DeBose said. “And always, we will continue to work to improve our oversight to identify conflict-of-interest issues.”